Can Vedanta Address the Problem of Economic Recession?

Questioner: Good evening, sir. I'm Gauri. Sir, I would like to ask a question regarding the global recession. Sir, as we know the global recession has risen from 4.7% in 2021 to 8.8% in 2022. Because of this, we are facing a cost-of-living crisis in many countries. Thus, as a result, we are focusing on the growth to solve this issue. And the leading economists of the world have also predicted, that we will face a recession in 2023 as well. Sir, you have talked earlier about how Vedanta can help in solving the problem of poverty and global warming. Sir, can Vedanta also solve the problem of recession?

Acharya Prashant: Can Vedanta solve the problem of recession? Where do recessions come from? Look at, for example, the last two recessions that we have faced. The 2001 dot-com bubble and the 2008 housing crisis — the mortgage bubble. So, what happened?

The 2001, I was in college those days. What was happening? Everybody wants to invest in technology companies, without knowing what that technology is about. And internet-based technologies were very, very nascent at that point. The companies that were receiving sky-high valuations, you know, forget about them having profits; most of them did not even have any product. No product, and yet a lot of money was flowing into them. No product, and yet a lot of money was flowing into them. How was that happening?

Imagine, this is 1998-99, right? I have come up with a dot-com company. That's what they used to call that, at that time. I have come up with a dot-com company, and nobody knows much about technology yet, not the general public, at least, even the investors do not know much, frankly. And yet a lot of money has been pumped into that company. That company has no product. That company has no profit. And yet many of those companies were able to come up with IPOs.

What was happening? We are investigating how recessions, first of all, come about. What was happening? Why would you put your money in a company you know nothing about? So, two things — ignorance and greed. First of all, I do not bother to inquire what is going on. I do not know where I am putting my money, and still, I put my money there. Why? Because everybody is putting his money there. It's the latest fad. If you are not investing in dot-com, you are an idiot. If you are not investing in dot-com, you are an idiot.

And look at how we all, the common man, look at how the common men live their daily lives. Do we inquire into what we are doing? No. For example, the common man just gets up in the morning, dresses up, and sets out for the office. Does he really bother to stop and ask, why must I continue with this job? Why must I continue with a life like this? There is no attempt to understand at any step in daily life. We just live.

We do things because others are doing the same things. So where do you invest? Where everybody is investing. And if everybody is investing in one place, the prices skyrocket. And when the prices skyrocket, you take that as proof that the asset is worth something. The fact is, that the asset valuation is not backed by fundamentals. Fundamentally, there is nothing in it. But just because everybody is doing it, so I am also doing it. So, everybody is investing in dot-com. I too, am.

The neighbor on this side, what did he do? The neighbor on that side, what did he do? But that's what I have been doing all my life. I have been following what the neighbors on this side and on that side have been doing. This one took admission in an engineering course, this one took admission in an engineering course. So, I sent my kid to an engineering college. This one decided that you know, earning, marrying, and having kids was the purpose of life, this one did exactly the same. So, I followed in their footsteps. I have been doing what all others have been doing all my life.

Mind you, we are trying to understand a phenomenon in economics called recession. Please understand how everything has bad spirituality at its core, even if the thing is a phenomenon in economics. I am fond of saying, good spirituality is good economics. If you do not understand spirituality, you will fail even in economics. Out of ignorance, you will act, and out of greed, you will keep acting.

So, I put my money in something, and I am putting my money exactly where everybody else is putting his money. So, what happens to the asset price? It keeps rising. When the asset price rises, I still do not investigate why the price is rising and whether the rise is backed by fundamentals. I take the price rise, as proof that the asset is indeed worthy.

And when the price rises, what do I do? I invest even more. So, I get logged in. I get logged in, and it's rising, rising, rising. And then, one day, somebody decides to check whether the valuation has any substance at all. So, the price dips a little. When the price dips a little, my confidence starts shaking because, in the first place, there is no confidence at all.

So as soon as there is a dip, a lot of people run away. When a lot of people run away, what happens? The dip gets deeper. And when the dip gets deeper, then there is a run on the stock, and then there is a free fall. Just as the bubble rose, equally swiftly, the bubble got punctured.

And all of that is because of two fundamental things—ignorance, which is a lack of inquiry, and greed. And economics does not address the problem of ignorance. Economics also does not address the problem of greed. It is the Upanishads and Gita that address this problem.

Now, the 2008 bubble, was, in a way, linked to the 2001 bubble. So, from technology, all the money has been withdrawn. So, the money has to go somewhere. What will the banks do with their funds? The funds have to be deployed somewhere. So, what did the banks do? They said, “Fine, let everybody have a home. Please, please, please come over. We'll give you loans at low interest rates without even checking your loanworthiness. We'll be very lenient, and the rates will be kept low.”

Because the stock market had freshly crashed, in 2001, right? So, the funds are there now. The funds have to go somewhere because what is there? Greed is there, the greed for profit. And where there is greed, there is ignorance. There is deliberate ignorance. The banks decided to be deliberately ignorant. So, some fellow on the road, it is very clear that he will not be able to repay the debt. Even he was extended a loan at very favorable terms.

And then all these loans, ultimately, they got bundled into something called mortgage-based securities. And now, these mortgage-based securities are being traded on international exchanges. Do you know what was the nature of those loans? I forget the exact term that is there. It's called ARM — ‘Adjustable-rate mortgages.’

And what is an Adjustable-rate mortgage, you know? “Fine, I know you are a poor man. Obviously, you cannot begin with your EMIs. So, for the first year, there would be hardly an EMI or a very small one. And then, obviously, there is hope, there is optimism, and we know you are a clever man. Sooner than later, you will start earning big. So, later on, third or fifth year onwards, we'll increase the quantum of your EMI. And right now, you can happily walk away into the house.”

So, people accepted the offer; who would not lap up such an offer? And what happened when the third or fifth year came after 2001? By that time, the stock market had started strengthening. And when the stock market strengthens, the interest rates, too, harden. So, the finance rates had actually become harder, and bigger. And these people, cannot pay back their debts. And then the bubble burst.

All of this was happening under the watch of very, very intelligent people. You know of the bank that went down. What was the name? 2008, the biggest bank that went down, what was the name? Lehman Brothers. So many from my IIM Ahmedabad batch were working there. I know the caliber of people. But intelligence becomes lame when emotions rule. Greed will totally obfuscate your intelligence.

A recession is not a very complicated phenomenon. It has nothing but human fallibilities at its core. If we could invest only where there is real value, there would be no bubbles at all. If we could invest only where there is real value, there would be no bubble at all. But in general life also, we do not know where the real value lies. Right?

As young people, for example, you fall for a boy or a girl. And you invest your time, your money, your energy, your attention for years. Don't you? You know how much time, and energy relationships consume. Right? Are you sure that asset is worth it? Just talking in the language of economics and investment. Are you sure that person is worth your investment? No. What are you doing? You are just building up a bubble. And the bubble will burst as bubbles do. And then you will be left awestruck, thunderstruck. What has happened? What has happened?

It was a bubble. The asset was not worth the attention you were giving it. It was not an asset at all, a liability rather. So be very cautious, about where your time is going. Be very cautious, about where your money is going. Forget about investment; even in expenditure, you should be very clear whether the rupee spent is actually worth it.

And money, anyway, comes far later. Your life is everything. Life is time, and life is consciousness. Consciousness means mind. If you are allowing somebody space in your mind, be very, very clear that the person is worth it. If you are espousing an ideology, be very certain that the ideology is worth it. Otherwise, you are building a bubble. And the bubble will burst.

So, what is the fundamental cause behind all recessions? Ignorance and greed. And economics does not teach you how to deal with ignorance and what to do with greed. That can come to you only by? Vedant, Upanishads. And that's the reason we are talking, right? Good.

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